Tags: Golden Parachutes | severance | chief executives | wall street journal

WSJ: Golden Parachutes Lose Their Luster

WSJ: Golden Parachutes Lose Their Luster
(Dollar Photo Club)

By    |   Thursday, 13 August 2015 08:01 AM

Up until recently, CEOs who got booted from their corner office could count on a hefty severance package — known as a golden parachute — whether their performance was good or not.

Almost 60 percent of Fortune 250 companies guarantee cash severance to top executives fired without cause, according to Equilar, a compensation research firm.

However, "slowly but surely, that generosity appears to be changing," writes Wall Street Journal reporter Joann Lublin.

"After facing heat for a fired chief’s big payday, certain corporate boards are having second thoughts—and crafting more modest departure deals for new leaders."

Directors are worried about the reaction of investors to golden parachutes. “Boards don’t want to have severance pay practices that are problematic in the eyes of investors,” Robin Ferracone, head of Farient Advisors, an executive-compensation consulting firm, told The Journal.

Hertz dumped CEO Mark Frissora last fall after weak earnings and accounting problems. The company's board then arranged a "relatively modest" exit package for his successor John Tague, according to The Journal.

Hertz shares have returned negative 41 percent over the past year, compared to a positive 10 percent return for the S&P 500 index.

Elsewhere on the compensation front, Tim Worstall, a fellow at the Adam Smith Institute in London, believes in a free market for labor, and that means he doesn't believe in a minimum wage.

"The correct level of the minimum wage is zero dollars per hour, simply because we shouldn’t be price fixing," he writes on Forbes.com.

Worstall's column comes as Seattle, San Francisco and Los Angeles have approved minimum wage increases to $15, and other city governments are discussing it too. The federal minimum wage is $7.25.

"The sensible way to deal with poverty and low income is to allow the market to work itself out, see what employers are willing to pay in various areas for various types and skill levels of labor," Worstall says. "And if there’s people left over at the end who do not have what we regard as a sufficient income, then we give them some money."

Thus the issue of low income should be addressed through the welfare system, not the labor market, he believes. Raising the minimum wage too high will only kill jobs for the poor, Worstall says.

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Up until recently, CEOs who got booted from their corner office could count on a hefty severance package—known as a golden parachute—whether their performance was good or not.
Golden Parachutes, severance, chief executives, wall street journal
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2015-01-13
Thursday, 13 August 2015 08:01 AM
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